An Economy With A Large Flow Of Funds Requires: Personal Finance – Three Timeless Wealth Concepts to Impart to Your Children

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Personal Finance – Three Timeless Wealth Concepts to Impart to Your Children

Have you ever wondered why the rich get richer? Some argue that they can enjoy more wealth in each succeeding generation. For many, however, the real reason is that wealthy people teach their children financial skills that will stay with them for life. These skills are then used more skillfully in each generation leading to a snowballing increase in wealth.

So this article highlights three wealth concepts that you can consider giving your children at an early age to give them a financial head start in life.

#Concept 1: Good Debt and Bad Debt

Today many people are drowning in debt and on the contrary, some people stay away from debt as much as possible. A more balanced approach is needed. Debt is important in our economy because it is used to fund large projects. Thus, knowing the difference between good debt and bad debt is key to what it is used for.

For example, credit card debt is bad debt when used to buy depreciating consumer products, while debt can be good debt if you buy real estate and start earning cash flow from the difference between the monthly rent and the monthly mortgage. Could be a loan. installments. Thus teach your child how to use credit wisely.

#Concept 2: Cash Flow and Capital Appreciation

Many people cannot tell the difference between these two concepts. There are generally two types of financial instruments and some hybrids. Most financial instruments are capital appreciation instruments which means that you make money when the price rises and when someone else buys from you when you sell the instrument. (eg stocks and shares) thus the capital (principal amount paid by you) has increased in value thus “Capital Appreciation”.

On the other hand there are instruments that give you cash flow i.e. profit share. Examples include real estate investment trusts and other mineral rights trusts such as oil trusts where you receive a share of the monthly oil income. These instruments are great when you earn a large enough amount from your capital appreciation type instruments and you put a portion of the money in them for monthly cash to actually use. Children should be taught this difference early in life so they can learn how a free economy works.

# Concept 3: Take charge of your own money

Fund managers and analysts like to toot their own horn to explain how they have performed in the market. Actually, fund managers make money by managing your money. That means they either charge a management fee or a flipping fee and not whether your portfolio makes money or not. This means they can mismanage your money and still get paid.

Studies show that at the end of the day many fund managers can’t fare better than an individual in stock selection, and give rise to reports that monkeys throwing darts at random stocks on a dart board can actually fare. Better in this way teach your children to learn more about investing and take your own financial responsibility and invest yourself.

After all, it’s great to teach kids about finance at a young age, and in fact some of the brightest fund managers today talk about having their parents and grandmothers analyze stocks in front of them when they were kids. Start teaching young children how to manage their own finances and understand how the modern economy works, and they will grow up to better handle the financial world.

Copyright © 2006 Joel Teo. All rights reserved. (You may publish this article in its entirety with the following author information only, with a direct link.)

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